>The Certainty of Rising Prices
By Homer S. Schalazar
Around Christmas 2006, a friend posed a pertinent financial question: “You’re an investor, so where should I put my money?”
I told him without regret that even though I do invest, I don’t invest other people’s money. I hinted that commodities, like corn and soy beans, would do well, due to ethanol development and Asian and Indian surging demand for goods.
That was a simple answer to what clearly was a trend in the making. I also mentioned a military defense company. I look back at how simple it was to say that, and now I realize that those ideas that fall off your tongue after some study and thought usually hold some validity.
There was little for certain that I knew at that time—there seldom is— except that the American economy was headed downward sometime that year. The housing market had topped. The construction of new homes had declined. Speculation was at an unprecedented high. Why? Stocks were being priced at unjustifiably high prices.
That was going against the grain. From 2006-2008 the S&P index prices fell and fluctuated from around 1280 to 1570 and back down again.
Christmas 2007, I was wiser, and when asked the same question after having seen commodities continue to rise globally as Jim Rogers had forewarned. He had touted them as his major holding, but as every good trader knows you can’t live and die on someone else’s wisdom. I had to lean on only one thing—my own judgment—this time in the light of what seemed obvious.
As an investor there are times that you have nothing except your own judgment and ability to make a decision. Hopefully, experience helps us make prudent choices.
I was faced with the question:. “Am I too late?”
My advice in every investment decision, especially real estate, is to invest in what you understand and have studied well enough to reach a conclusion from experience. Because of the volatility of everything, of necessity it must concern a time frame in which you are able to finance your decisions.
These decisions will come with opportunity costs as life goes on. Holding some real estate, grain, oil, or gold seems like good advice, depending on individual financial constraints. Right now it is obvious that it would have been a great play many months ago to have invested in gold.
There is one constant. Each investor must determine his/her own risk tolerance.
Globally, the impact that China and India will have on commodity trends in transportation, and household heating, cooling, cooking, and using electricity warrants consideration.
Stephen Leeb and Glen Strathy wrote a book called The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel. They think there is a real possibility of $200 per barrel oil and $10 per gallon gasoline in the near future. They say that the fundamentals behind the rising prices are very strong, simply because supplies are insufficient to meet future global demand. China and India together will surpass U.S. consumption of oil at a rate that in ten years will seem unbearable, unless we somehow disconnect our demand from oil supplies from countries like Saudi Arabia, Iraq, Nigeria, and others that are subject to terrorism and political uncertainty. The U.S. must find alternative energy sources. China and India are growing so fast that they will surpass U.S. energy demand, and the United States will no longer be the world’s economic growth driver. The U.S. economy will plateau in growth, while China and India will continue to grow at a progressive rate.
Alternative energy stocks, gold, and commodity futures will help to energize investors’ financial accounts as these emerging economies feed growing populations. Also, stocks held for energy conservation investments, and currencies as a defensive investment strategy against inflation are recommended by Leeb and Strathy. Stocks like those that have fueled the American economic expansion during the 1970s to present times will also make these emerging economies strong.
I can only think of one scenario worse than rising inflation and high unemployment for the American people. This danger is embodied in this year’s presidential election, electing the wrong man. But perhaps this time Americans will learn to trust their values and core beliefs.